Do the recently enacted federal tax laws change the treatment of workers’ compensation and/or personal injury settlements?
The short answer is “no.”
In fact, you typically won’t be taxed for money you receive in a personal injury or workers comp settlement. Money an injured victim gets in a settlement or as the result of going to court in their personal injury and/or workers compensation claim is considered a “casualty loss.” This is like if your house burned down or your car was stolen and you received money from an insurance company to reimburse you. If you were taxed on it, then you would not get close to the fair replacement or repair of your car or house, and you would still be at a big loss.
Herndon Virginia injury lawyer Doug Landau calms anxious clients with these kinds of tax questions by explaining that settlements and verdicts in injury cases, such as car crashes, workers comp, trip and falls, etc., are not usually subject to state, local or federal taxes. He always advises clients to check with their professional tax preparers or advisers,. The settlement or award money injured victims receive for damages are meant to compensate their medical expenses and the physical pain, inconvenience, scarring, permanency, embarrassment and emotional suffering that came from the injuries. Since the money is meant to reimburse you for your out-of-pocket losses, you should not be subject to taxes.
However, there are some instances where parts of your settlement may be subject to taxes. Money you receive in compensation for lost income in a wrongful discharge, age discrimination or retaliatory firing case may be taxed because your original income would have been taxable had you not suffered the income loss. So if you won an employment discrimination case the settlement money received from it may be taxable.
If you or someone you know was injured due to no fault of your own, and there are questions about compensation, what can be requested in a lawsuit and what to expect, please give us a call (703-796-9555) or email us at Abrams Landau, Ltd.